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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: NOW who wrote (1457)3/7/2004 8:12:24 PM
From: mishedlo  Read Replies (1) of 116555
 
oil from venezuela
from bankingintern on the FOOL

Most refineries can take any type of oil you've got, however they most efficently produce the most valuable products for the lowest cost when using oil that has a specific range of quality. One of the highest value added prodcts is gasoline, there are others.
The crude from venezula sells for a discount relative to higher quality products (the discount of which changes with market forces) and more capital investment is required to process this crude into gasoline. When these plants process lighter crudes their materials cost goes up by quite a bit, and their output stays roughly the same. This cost increase pushes up the marginal cost of gaoline driving price higher.

The heavy crudes really can't move to many places besides a few plants (mostly in the US) because the capital investment required to make effient use of that oil is in the billions. Other refineries can process it but much of the oil that goes into the plant will come out the backend as tar like products which can sell for less on an equal basis that oil. If any but a handfull of plants built to process the heavy crude they will wind up operating at a loss.

Exports from Venezuela to the U.S. are all marine, and mostly by chartered ships. To stop those ships, the port city they are headed to only need be in civil unrest. Then the standard shipping insurance will not cover damage to the ships and most firms will not pick up cargos. War insurance will cover picking the oil up but it costs money and takes time to get.
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